To get the Best of the Bond Market delivered to your email daily click here.
Bond maven Jeff Gundlach appeared on CNBC this morning, bigging up the outlook for Treasuries.
Gundlach, chief executive at DoubleLine Capital LP, told CNBC he thinks the 10-year Treasury yield is set to fall to 2.5%, or maybe even a little below that, in a base-case scenario. In a more extreme case, he says a rally could force a “short squeeze” in the Treasury market, driving yields lower still.
Gundlach also weighed into the current situation in Puerto Rico. Saying, “They’re not my cup of tea but they will make it to the goal line for investors who want to take that kind of risk,” adding, “even if it is only because of assistance from the federal government.”
Regarding QE, he said the Federal Reserve will not end its quantitative easing in 2014, due to market volatility. There is a 50-50 chance, that the Fed will reverse course and increase its bond buying. “The world hasn’t started out that great in 2014,” he said.
When it come to corporate debt, Gundlach reiterated that corporate bonds are overvalued, while dollar-denominated emerging-market bonds are still fairly valued versus Treasuries. “I think emerging markets have largely discounted tapering,” he said, “and you need some other value to come into play to get really worried about emerging markets.”
Todays Other Top Stories
ETF.com: – Time to look at munis. – Muni bonds got bad-mouthed a fair amount last year, but it might be time to revisit them, as valuations in the space look pretty cheap relative to corporate bonds. It’s true that the muni market has its troubled hot spots—like Detroit last year and now Puerto Rico. But don’t throw the baby out with the bathwater, as investors looking for investment-grade, tax-free debt might find the muni space prime for picking.
High Yield Municipals: – COFINA Bondholders, beware. – Bondholders of the highest-rated bonds issued by the Commonwealth would do well to watch for upcoming legislation that will overhaul the means by which the Commonwealth imposes sales taxes.
LearnBonds: – Are REITs a practical bond alternative? – Since investors can find comparable yields in both products, the temptation may be there to shift bond exposure towards REITs, especially since the latter also tends to grow its yield over time. However, the capital risk of REITs remains unquestionably elevated relative to the contractual guarantee of a bond.
Reuters: – Long yields highest in 2 weeks, boosted by Yellen. – Yields on long-dated U.S. Treasuries climbed to their highest in two weeks on Tuesday after Federal Reserve Chair Janet Yellen pledged to continue the bank’s current strategy of reducing asset purchases despite a still unstable labor market.
Income Investing: – Junk bond default rate drops to 1.8% in January. – If the junk-bond market has a disappointing year it probably won’t be because a lot of companies defaulted. Credit risk is near all-time lows for speculative-grade companies in the U.S., with the default rate falling to 1.8% in January from 2.2% in December and 3.3% a year ago, per Moody’s. Globally, the default rate fell to 2.5% in January from 2.5% in December.
Bloomberg: – Moody’s seeing junk-bond protections bolstered as sales decline. – The quality of financial requirements for high-yield bond issuers in North America got better for a third straight month while issuance was low, according to Moody’s Investors Service. A measure of U.S. corporate credit risk held at about a three-week low.
FE Trustnet: – The serious risk facing your bond funds. – Bond managers are crowding into the high yield space and putting their investors at risk of a reversal in that sector, according to Hermes’ Fraser Lundie, who says that large parts of it are now overvalued, highly risky and offer very small amounts of upside.
BBR: – Loomis Sayles unveils emerging markets opportunities fund. – Loomis, Sayles & Company has rolled out its latest unconstrained emerging markets bond mutual fund that has the flexibility to invest in developing markets across the globe.
The Asset: – What lies ahead in 2014 for EMs’ debt relative strategies? – Emerging market debt finished 2013 in negative territory, a victim of U.S. Treasury volatility spurred by potential changes in Federal Reserve (Fed) policy. The most liquid parts of the asset class—sovereign dollar bonds—have fared the worst given their correlation to treasuries. Fear of the impact of less loose monetary policy has soured investors on the asset class.
MoneyBeat: – PIMCO’s Gross raises government holdings. – Bill Gross boosted holdings of high-grade U.S. government bonds and mortgage-backed securities last month for Pacific Investment Management Co.’s Total Return Fund as a flight for safety fueled a strong price rally in the debt securities.
Businessweek: – How the decline in stocks could help your 401(k). – This year’s stock market decline has left investors uneasy. But money managers say take a breath — the downturn could offer opportunities to strengthen your retirement savings for the long run.
NASDAQ: – Guggenheim Investments to close enhanced core bond ETF (GIY). – Guggenheim Investments, the investment management division of Guggenheim Partners, LLC, today announced that it will liquidate the Guggenheim Enhanced Core Bond ETF (GIY) in order to reinforce its commitment to focusing resources on products that have demonstrated the most demand in the marketplace.
InvestorPlace: – 3 ETFs for high yield, interest rate protection. – Long/short bond ETFs could be the best way for investors to have their cake and eat it too.
ETF Daily News: – PIMCO files for more active ETFs. – PIMCO, the California-based ETF and mutual fund issuer, appears to be on a roll and is seeking to triple its active ETF roster by offering variations for the popular mutual funds not only in the fixed income world, but also in the broad space – including equities and commodities.
ETF.com: – Credit trumps duration in bond ETFs. – This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features K. Sean Clark, CFA, chief investment officer of Philadelphia-based Clark Capital Management.
Market Realist: – Must-know weekly bond market outlook: Investors favor high yield. – Overall, a good number of issuance came to market last week. However, bond market prices were mainly down, as the yield on ten-year U.S. Treasury and BAML Index soared. The week ended on a low note given poor unemployment and manufacturing data. Investors moved back to high yield bonds in search of higher returns.
WSJ: – Long-Term mutual fund inflows $411 million in latest week. – Long-term mutual funds posted estimated inflows of $411 million in the latest week, down from recent weeks, according to the Investment Company Institute.
WSJ: – Fidelity’s profit up 13% as outflows decline. – Fidelity Investments, the Boston-based asset manager and discount brokerage, said the operating income of its financial services business rose 13% to $2.6 billion, though investors continued to pull money from the company’s stock and bond mutual funds.
Gross: Fed’s Bullard suggests substituting “Qualitative” for “Quantitative” easing. Problem: Quality/Beauty in the eye of the beholder.
— PIMCO (@PIMCO) February 12, 2014
Gross: Carney/BOE say likely to validate forward curves – i.e. higher short rates soon. UK assumes leader of the tightening pack.
— PIMCO (@PIMCO) February 12, 2014
For those who asked, a double-barreled bond is a bond that involves both a general obligation and a revenue pledge.
— Bond Girl (@munilass) February 12, 2014
“Bond Squad is my favorite bond investing newsletter. It combines common sense with deep market knowledge.”
– Marc Prosser, Publisher of Learn Bonds
Bond Squad is more than just an investment newsletter! Paying subscribers can call-up bond market veteran trader and portfolio manager, Tom Byrne, for market advice and have him review their portfolio free of charge.
Get a free two-week, no commitment trial of Bond Squad by emailing Tom at firstname.lastname@example.org
Or learn more about Bond Squad’s clearly written, expert analysis, click here